Monday, August 18, 2014

This is an interesting story that was sent to me quite some time ago -- while I was traveling. It looks like the oil industry is starting to look at whether lessons learned and technology used to recover oil from tight/unconventional sources can be used in "emerging tight conventional reservoirs."

The growing importance of the application of horizontal wells and
hydraulic fracturing to boost recoveries from tight and under-performing
conventional reservoirs is exemplified by a recently announced group
development project in Wyoming’s Powder River Basin.

The proposed 5,000
well development project involving seven or eight Cretaceous producing
reservoirs in Converse County, Wyoming is the first evidence that
emerging tight conventional reservoir developments might rival some of
the shale/resource plays.

Anadarko Petroleum Co, Chesapeake Energy Corp, RKI Exploration &
Production, EOG Resources, Samson Resources and SM Energy propose to
drill approximately 5,000 horizontal oil and gas wells in Converse
County, Wyoming in an area encompassing approximately 1.5 million acres
over a 10-year period.

The project area’s northern
boundary is the Campbell County line. The Operators Group (OG) also
represents the interests of other companies within the project area. The
U.S. Bureau of Land Management (BLM) published a notice of its intent
to prepare an environmental impact statement (EIS) for the Converse County Oil & Gas Project.

The article led with this:

The Unconventional Oil and Gas revolution in North America created a new
boom for North American energy supplies which was driven by application
of new technology.

Horizontal drilling and hydraulic fracturing are the
most cited technological keys for unlocking commercial oil production
from tight rocks.

The new oil and gas boom also has changed the
conventional oil and gas playing field.

Today we are seeing legacy asset
revivals in many areas of North America, including the Permian Basin,
the Anadarko Basin, the Powder River Basin and other oil and gas rich
basins.

The key components of this conventional revival are the
“unconventional technologies” cited which are now being used to unlock
the “not so tight” conventional rocks. Other key enablers include
increased operational efficiency, leveraging and capitalizing on
in-place infrastructure and the benefits of working in areas of historic
production with communities that understand the industry.

Companies are
reevaluating legacy reservoirs from top to bottom and expanding the use
of traditional borehole data plus reservoir analytical modeling tools
to recover left behind and previously uneconomic to produce
hydrocarbons. With an average recovery factor of 34% for a conventional
oil reservoir, there is plenty of upside potential to improve that
recovery factor.

If I understand that correctly, the rule-of-thumb is 34%: that being the amount of oil that can be recovered from the original EUR/primary production. With new technology and lessons learned, the 34% may be low-balling the potential.

Don says MDU (Fidelity) was is a member of the Operators Group involved in the Converse County (Wyoming) Oil & Gas Project.

MDU Resources Group, Inc., announced today its indirect wholly owned subsidiary, Fidelity
Exploration & Production Company, closed on the purchase of oil and
natural gas production assets in Converse County, WY, in the
southern Powder River Basin, with an effective date of Oct. 1, 2013.

The purchase price was approximately $183 million plus accounting and
purchase price adjustments customary with acquisitions of this type and
is expected to be accretive to 2014 earnings per share.

“We
identified the area last year for establishment of our third oil play
and our team successfully sought out acreage in this top-tier basin,”
said David L. Goodin, president and CEO of MDU Resources. “The upside
potential of its multiple prospective zones is appealing to us and we
anticipate it will result in a long-lived production asset.”

Third oil play for Fidelity/MDU? I assume the first two are the Bakken and the Niobrara. The PRB acquisition:

The acquisition consists primarily of non-operated undeveloped mineral
leasehold positions of approximately 42,100 gross acres and 24,500 net
acres. In January, the properties had existing net production of more
than 1,100 barrels of oil equivalent per day, 80 percent of which is
oil. Plans for 2014 include a two-rig seasonal drilling program
targeting the heart of the prolific Frontier play.

$183 million / 24,500 net acres = $7,500/acre which compares favorably to some of the better Bakken acreage.